RegWatch - CUNA OpSS Council

CUNA Regulatory Affairs (edited by the OpSS Council Regulatory Committee)
December 18, 2008 | COMMENTS

Regulatory Issues of Interest to CUNA OpSS Council Members

In This Issue:

• NCUA and Other Agencies Issue Appraisal Guidance
• CUNA Comments on Recent Proposal to Amend the Share Insurance Sign Requirements
• FED Issues Proposal to Revise Mortgage Loan Disclosures
• Update on the Mark-to-Market Accounting Rule
• FinCEN Simplifies CTR Exemption Process

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NCUA AND OTHER AGENCIES ISSUE APPRAISAL GUIDANCE

he NCUA and the other federal financial institution regulators (Agencies) have issued proposed Interagency Appraisal and Evaluation Guidelines (Guidelines) that outline supervisory expectations for sound real estate appraisal and evaluation practices. This includes formal appraisals, as well as other evaluation methods that are permitted under certain circumstances. The Guidelines are intended to clarify and provide more details on appropriate risk management principles and internal controls for ensuring that real estate appraisals and other evaluations are reliable and support the real estate transactions.

The Guidelines replace the 1994 Interagency Appraisal and Evaluation Guidelines and incorporate recent regulatory actions, while also reflecting other changes in industry practices, uniform appraisal standards, and available technologies. NCUA was not a party to the 1994 Guidelines.

The Guidelines also include three appendices. One provides further clarification on real estate transactions that are exempt from the agencies' appraisal regulations, while another addresses acceptable evaluation alternatives, including the use of automated valuation models (AVMs). The third appendix provides a glossary of terms.

Comments on the proposed Guidelines are due by January 20, 2009. Click here for a copy of CUNA's Regulatory Comment Call for more information.

- Jeff Bloch, Senior Assistant General Counsel

 

CUNA COMMENTS ON RECENT PROPOSAL TO AMEND THE SHARE INSURANCE SIGN REQUIREMENTS

CUNA recently submitted a comment letter to the NCUA in response to a proposed rule that will amend the share insurance sign requirements for federally insured credit unions participating in shared branch networks. Currently, for tellers accepting share deposits for both federally insured and nonfederally insured credit unions, there must be a second sign adjacent to the official NCUA insurance sign. The second sign must list each federally insured credit union served by the teller, along with a statement that only those credit unions are federally insured. The proposed rule will replace the required list of credit unions with a general statement that not all of the credit unions served by the teller are federally insured and members should contact their credit union for further information.

As outlined in the letter, CUNA supports the goal of the proposed rule, which is to reduce the burden of the current share insurance sign requirements for shared branch networks. The letter also suggests additional flexibility for credit unions. This includes only requiring one sign in the branch in a conspicuous location that provides the general statement that not all credit unions served by the teller are federally insured or, instead of a sign, allowing tellers at credit unions that provide service to members of other credit unions the option of providing a separate disclosure to these nonmembers. A federally insured credit union that provides service to members of other credit unions should also have the option of indicating either on the sign or any separate disclosure that it is federally insured.

Click here for a copy of CUNA's letter.

- Jeff Bloch, Senior Assistant General Counsel

 

FED ISSUES PROPOSAL TO REVISE MORTGAGE LOAN DISCLOSURES

The Federal Reserve Board (Fed) late last week issued a proposal that will revise the Regulation Z disclosure requirements for mortgage loans. These are specific changes to implement provisions of the Mortgage Disclosure Improvement Act (MDIA), which was enacted this past July and amends certain provisions of the Truth in Lending Act. As previously planned, the Fed is in the process of reviewing Regulation Z in its entirety and will issue more changes to the mortgage disclosure provisions sometime next year.

The MDIA requires creditors to give good faith estimates of mortgage loan costs within three days after receiving the application for the mortgage loan and before any fees are collected, other than a reasonable fee for obtaining a credit report. This is consistent with the Fed's recent final rule that amends the Home Ownership Equity Protection Act, which imposes this requirement for the consumer's primary home, but the MDIA now broadens this requirement to include all dwellings, such as second homes. The proposed rule incorporates this extended coverage and also implements these additional requirements that were included in the MDIA:

• Creditors must wait seven business days after they provide the early disclosures before closing the loan.
• Creditors must provide new disclosures with a revised annual percentage rate (APR) if there are any changes that result in the APR being inaccurate beyond certain tolerances. These disclosures must be provided at least three days before the loan closing.

With regard to the above requirements, the proposed rule will allow a consumer to expedite the loan closing if due to a personal financial emergency, such as a foreclosure. As required under the MDIA, the requirements under the proposed rule will become effective as of July 30, 2009. Comments in response to the proposal are due by January 23, 2009. CUNA's Regulatory Comment Call, which will provide additional information, will be posted on CUNA's website shortly.

- Jeff Bloch, Senior Assistant General Counsel

 

UPDATE ON THE MARK-TO-MARKET ACCOUNTING RULE

The recent Emergency Economic Stabilization Act tasked the Securities and Exchange Commission (SEC) with conducting a study on the potentially negative effects of mark-to-market (MTM) accounting on the balance sheets of many financial institutions. The SEC must report its findings to Congress by January 2; the report will include the SEC's recommendation on whether to suspend the accounting rule.

Certain assets held by financial institutions are required to be measured using the MTM accounting technique. This essentially requires these assets to be valued at the price they could be sold for today on the open market. Of concern, is the current lack of willing buyers for many of these assets, including mortgage-backed securities. Although credit unions do not report directly to the SEC they must follow Generally Accepted Accounting Principles which mandate MTM.

Critics of MTM accounting argue that the rule ignores the holder's intent and ability to retain an asset. Mortgage-backed securities, for example, will likely fetch much less than their original purchase price in today's market. Proponents of the accounting rule site the need for full transparency of the condition of an asset to ensure investor confidence. Many of these individuals believe MTM has not caused the problem but has simply illuminated existing issues with certain assets.

CUNA has been in contact with individuals at both the SEC and the Financial Accounting Standards Board (FASB) to ensure the concerns of the credit union industry are addressed. Additionally, CUNA's Accounting Task Force has been closely monitoring the SEC's study and has attended both public roundtable discussions.

In a recent letter to the SEC, CUNA emphasized that while credit unions are impacted to a much lesser degree by the current economic downturn than are most other mainstream financial institutions, it is still important that a thorough examination be conducted on changes to any accounting rules that credit unions must follow.

The SEC has recently indicated that it is unlikely to suspend the MTM accounting rule but will make some revisions in an effort to improve it. CUNA will provide an update on this issue as soon as the SEC releases a definite plan.

- Luke Martone, Regulatory Research Counsel

 

FINCEN SIMPLIFIES CTR EXEMPTION PROCESS

The Financial Crimes Enforcement Network (FinCEN) issued a final rule simplifying the requirements for depository institutions to exempt certain customers from filing Currency Transaction Reports (CTRs). The Bank Secrecy Act (BSA) regulations require that all financial institutions, including credit unions, file a CTR for each transaction involving currency (cash) of more than $10,000.

The BSA regulations created two categories of “exempt” status, Phase I and Phase II, so that transactions of certain individuals do not need to be reported if such information is unlikely to aid officials in addressing potential criminal activity. Therefore, if an “exempt person” initiates a currency transaction in excess of $10,000 the credit union is not required to file a CTR.

Most credit unions, as well as other depository institutions, have not made full use of the exemption option because of the burdens and uncertainty associated with it. In an effort to encourage greater use of CTR exemptions, FinCEN is making the following changes to the current system:

• Depository institutions will no longer be required to review annually or make a designation of exempt person filing for members/customers that are other depository institutions, U.S. or State governments, or entities acting with governmental authority.
• Depository institutions will be able to designate an otherwise eligible non-listed company or a payroll customer after either two months (previously twelve) or after conducting a risk-based analysis of the legitimacy of that customer's transactions.
• FinCEN's definition of “frequent” transactions will be lowered from eight to five transactions per year.
• Depository institutions will no longer be required to biennially renew a designation of exempt person filing for otherwise eligible Phase II customers. However, an annual review of these customers must still be conducted.
• Depository institutions will no longer be required to record and report a change of control in a designated non-listed or payroll customer.

CUNA's Final Rule Analysis will be posted shortly on CUNA's website here.

- Lilly Thomas, Assistant General Counsel